August 10, 2017 10:00 am JST

Indonesian rail project goes off track over land acquisition

Future of the high-speed link is in doubt with less than two years to go

JUN SUZUKI, Nikkei staff writer

Indonesian President Joko Widodo attends a groundbreaking ceremony for a high-speed railway project in January 2016. © Reuters

JAKARTA Indonesia is facing major delays getting the land it needs for a planned high-speed railway, raising questions over whether Beijing should take the lead on the project, or whether it will be finished at all.

The rail link, which is supposed to run for about 140km between Jakarta and the city of Bandung, is expected to cost over $5 billion and is a key component of President Joko Widodo's push to develop Indonesia's infrastructure. Kereta Cepat Indonesia-China, a consortium of state-run companies from both countries, is in charge of its construction and operation.

At a meeting in late July, in a rare show of frustration, Widodo demanded that his transportation minister and other officials explain the lack of progress. He attended a groundbreaking ceremony for the railway in January 2016, but little actual construction has happened since. KCIC also has yet to receive a loan it agreed to with a Chinese bank in May because it has failed to fulfill conditions such as acquiring the necessary land.

ADD SWEETENER The consortium claimed in January to have secured 85% of the land, and said in May that it was on track to acquire the rest. But the figure reported at Widodo's July meeting was just 55%. KCIC is suspected of overstating its progress.

The Chinese loan is not supposed to be disbursed until KCIC has 100% of the land, forcing Indonesia to consider additional concessions to get the funds sooner. The consortium was previously granted the right to operate the railway for 50 years, starting May 31, 2019. But given that it is unlikely to be finished, let alone operational, by that date, Indonesia agreed to revise the terms of the deal to 50 years from the completion of construction. This gives the Chinese side more time to recoup its investment.

Some have also suggested raising China's stake in the consortium to about 90% from 40% and having it take the lead on the project.

Indonesia's initial plan for the high-speed rail link had Japan's shinkansen bullet trains in mind. But the Chinese bid, which offered a public-private partnership at no cost to the Indonesian government, was awarded the contract after Widodo became president in October 2014.

The consortium has urged the government to shoulder the costs should the project fail. Meanwhile, the government insists the rail link is fundamentally a private business initiative despite the fact that the companies leading the project are state-owned.

Officially, Indonesia is sticking to its target launch date of June 2019. But with almost no progress on the ground and less than two years remaining, meeting that timetable appears extremely optimistic. There is even talk of changing the route. "It's possible that the entire project will end up in limbo," an infrastructure expert said.

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